AT&T’s Merger Could Be A Bad Sign For The Economy

Almost as soon as word leaked out Friday about AT&T’s plan to buy Time Warner (the companies formally announced the deal late Saturday), politicians from both major parties lined up to oppose it. Donald Trump and Sens. Tim Kaine, Bernie Sanders and Al Franken all either raised questions about the merger or outright called for the government to block it. Sens. Mike Lee, R-Utah, and Amy Klobuchar, D-Minn., who lead the Senate’s antitrust subcommittee, promised to hold hearings on the deal. In the coming months, we’ll hear lots more about vertical versus horizontal integration, market concentration and the implications of consolidation in the media industry.

But beyond the specific questions raised by the deal itself, the proposed merger points to a broader issue: The U.S. economy is increasingly dominated by big companies. That trend worries a growing number of economists, who fear it suggests an economy that is becoming less dynamic and competitive over time.

In the late 1980s, according to data from the U.S. Census Bureau, about 40 percent of American workers were employed by companies with at least 1,000 employees. In 2014, the latest year for which data is available, that figure had risen to 46 percent. That may sound like a small change, but in the context of the entire U.S. economy — tens of millions of people working for millions of companies — it represents a massive shift. Since 1977, the earliest year for which data is available, the number of large companies (those with at least 1,000 employees) has doubled; small companies (those with fewer than 50 workers) have increased by only about half.

American companies aren’t just getting bigger; they’re getting older, too. About 68 percent of U.S. employees work for companies that have been in business for 20 years or more, up from 59 percent 20 years earlier, according to census data. Meanwhile, the startup rate — the share of U.S. companies that are less than a year old — has been falling for more than 30 years.

Those statistics push back against the narrative that incumbent companies are increasingly facing the threat of “disruption” from Silicon Valley upstarts. There are examples of genuine disruption — what Uber is doing to the taxi industry right now, for example. But overall, the evidence suggests that big, established companies enjoy more advantages than ever. The rate at which established companies fail has fallen since the 1980s, while fewer startups are surviving and growing. And in most industries, the share of total revenue earned by the 50 biggest companies has risen over the past 15 years, according to an April report from the president’s Council of Economic Advisers.

Much of the early scrutiny of the proposed AT&T merger has focused on what it means for consumers: Will it lead to higher prices for broadband internet? Will it allow AT&T to give preferential treatment to Time Warner content, like CNN or HBO? Or will it make it easier for consumers to access content across different devices?

But the broader trend of corporate consolidation matters for more than just consumers. It suggests that the economy as a whole has become less dynamic and flexible. Startups, in particular, are a key source of innovation in the economy — they generate new ideas, which force existing companies to adapt or risk failure. That process, repeated thousands of times, makes the economy as a whole more productive. The falling startup rate, combined with the rise of big businesses, suggests that this process has somehow broken down.

Economists aren’t sure what is behind the trends, and it can be hard to separate cause and effect. It’s possible that deals like AT&T’s (and Verizon’s acquisitions of AOL and, if it goes through, Yahoo) are part of the problem — an effort by big companies to gain even more market control and political clout so that they can muscle out would-be competitors. (Recent research has found, not surprisingly, that mergers tend to increase prices but not improve efficiency.) But the mergers could also be a symptom, a sign that other forces — globalization, slower economic growth or increased regulation, among others — are forcing companies to get bigger to survive. Either way, the continued trend of corporate consolidation is a troubling sign for an economy stuck in a prolonged pattern of weak growth.

Ben Casselman is a senior editor and the chief economics writer for FiveThirtyEight. @bencasselman